China’s role in global mining M&A overstated – Canadian buyers top world
China ramps up deal activity, but Canada outpaced the nation in 2010 36% to 6%: PwC report
TORONTO, Mar. 3, 2011— Dispelling the myth that China is amassing de facto control of the world’s mining resources via mergers and acquisitions (M&A), data for the decade ended December 2010 shows China remains a small player in global mining M&A. In 2010, only 6% of global mining deals involved Chinese acquirers, compared to acquirers from Canada (36%), the United States (16%) and Australia (16%), according to PwC’s new Mining Deals report released today.
Canada has always been a top destination for mining deals, but this year, Canada also topped buy-side activity – both within Canada and abroad.
“The reality is China has been a very active investor in global mining projects in recent years, but its current market share pales in comparison to Canada and other developed countries,” says John Nyholt, National Leader of Transaction Services, PwC. “Chinese-led M&A this decade has been impressive, but consider that Rio Tinto and Xstrata alone have completed more acquisitions during the first ten years of this millennium than all Chinese buyers collectively.”
The PwC report tracked 713 deals in 2010 that involved a Canadian buyer compared to 161 involving a Chinese buyer. Year-end results bring the decade ended 2010 tally to 400 Chinese deals worth close to US$48 billion, which is considerable given Chinese buyers were negligible players in mining M&A only ten years ago.
“In the West, Chinese entities have largely been opportunistic partners, seeking to secure supply by being long-term creditors,” says Nyholt. “Few Chinese buyers have successfully secured controlling stakes in western-owned mining companies. In fact, 61% of projects acquired by Chinese entities have been within China, with another 16% in adjoining Asian geographies or other emerging markets. However, we expect this to change in 2011.”
The report indicates the Chinese will take a more aggressive approach to M&A in 2011, paving the way for the world’s first Chinese-owned diversified mining powerhouse.
2010 and 2011 by the numbers
• In 2010, PwC tracked 2,693 global mining deals worth US$113 billion, bringing the decade total to more than 11,000 transactions and a value close to US$785 billion. No other sector has seen comparable volumes or growth rates.
• The sector saw an impressive recovery over 2009 with announced deal volumes gaining 28% and value climbing 77% higher than the previous year.
• Announced deal volumes shattered their previous record by posting a 21% gain over the peak of 2007. Yet, values remained 26% lower than the 2006 peak due to an absence of mega-deals (transactions over US$10 billion). This relative lack of mega-deals is due to an absence of large targets in play.
• A record US$27 billion in deals has already been announced in the first month and a half of 2011. The majority (81%) involved companies with interests in gold, iron ore, coal, copper and fertilizers.
• Canadian and Australian governments both took action to protect their national resources. Although, ironically, outbound deals from both countries into foreign nations outpaced inbound deals. Canadian-owned entities completed 236 acquisitions of foreign targets worth US$8 billion and Australian-owned entities completed 109 acquisitions of foreign targets worth US$9.7 billion.
Outlook for 2011
The PwC report predicts the pace of deal activity and values to increase in 2011. Anticipated upward pressure on deal values, in turn, may prompt more seniors to invest in organic growth.
PwC also expects more takeover activity of junior rare earth projects (as developed nations seek to secure supply amidst concerns of Chinese market concentration), uranium projects (as Asia and other regions set out on nuclear build-outs), and complementary extractive industries like shale (as energy security becomes a larger global concern).
PwC also forecasts an increase in Indian-led deals motivated by a desire to secure iron ore and coal supplies. Transactions are likely to be structured as private placements with offtake or royalty agreements (similar to the Chinese-led deals of 2005-2007).
One of the biggest challenges miners will face in 2011 is overcoming closing hurdles amidst growing criticism from governments, shareholders and NGOs. “The Government of Canada’s rejection of BHP Billiton’s takeover bid of Potash Corp. illustrates how stakeholders can impede deals from closing,” adds Nyholt. “In 2011, we believe it will be more important than ever that mining companies proactively work with their stakeholders to avoid similar deal disruptions.”
PwC’s report highlighted that a continued rally in mining M&A is not a sure thing. “While most of us view the emerging market growth story as an inevitable truth, others question the sustainability of such meteoric growth,” says Nyholt. “Political unrest and macro instability are both clear and present dangers to mining M&A today.”
For more information or to read the full Mining Deals report, visit: www.pwc.com/ca/MiningDeals
About PwC’s Deal Team
PwC’s Deal Team (www.pwc.com/ca/deals) helps clients to achieve deal success—from concept to close and beyond. As part of the world’s largest Transaction Advisory practice , and with our global Corporate Finance group being 2010 Upper Mid Market M&A Advisor of the Year , the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.
Firm Description
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,300 partners and staff in offices across the country.
“PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.
Note to Editors: PwC has changed its name from PricewaterhouseCoopers to PwC in the fall of 2010. ‘PwC’ is written in text with a capital ‘P’ and capital ‘C’. Only when you use the PwC logo is the name represented in lower case.
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of
PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
